AS Eesti Telekom Consolidated II Quarter and I Half Year 2008 Interim Report, EEK MANAGEMENT REPORT Management's commentary: The results were anticipated. It is positive that in the current economic situation, the EBITDA continued to increase. Compared to the same period last year, turnover was affected by a decrease in the interconnection fees charged between mobile operators. Significant financial indicators Eesti Telekom Group -------------------------------------------------------------------------------- | | Q2 | Q2 | Change | HY1 | HY1 | Change, | | | 2008 | 2007 | , % | 2008 | 2007 | % | -------------------------------------------------------------------------------- | Total revenues, | 1,567 | 1,582 | -1.0 | 3,051 | 3,079 | -0.9 | | million EEK | | | | | | | -------------------------------------------------------------------------------- | EBITDA, million EEK | 613 | 590 | 3.8 | 1,189 | 1,133 | 5.0 | -------------------------------------------------------------------------------- | Margin, % | 39.1 | 37.3 | | 39.0 | 36.8 | | -------------------------------------------------------------------------------- | EBIT, million EEK | 468 | 468 | 0.1 | 904 | 892 | 1.4 | -------------------------------------------------------------------------------- | Margin, % | 29.9 | 29.6 | | 29.6 | 29.0 | | -------------------------------------------------------------------------------- | EBT, million EEK | 487 | 479 | 1.7 | 939 | 919 | 2.2 | -------------------------------------------------------------------------------- | Net profit for the | 101 | 108 | -6.4 | 553 | 548 | 1.0 | | period, million EEK | | | | | | | -------------------------------------------------------------------------------- | EPS, EEK | 0.73 | 0.77 | -5.2 | 4.00 | 3.95 | 1.3 | -------------------------------------------------------------------------------- | CAPEX, million EEK | 184 | 184 | -0.2 | 303 | 301 | 0.5 | -------------------------------------------------------------------------------- | Net gearing, % | -14.3 | -23.3 | | | | | -------------------------------------------------------------------------------- | ROA, % | 31.3 | 30.7 | | | | | -------------------------------------------------------------------------------- | ROE, % | 46.5 | 46.8 | | | | | -------------------------------------------------------------------------------- Mobile communications segment -------------------------------------------------------------------------------- | | Q2 | Q2 | Change | HY1 | HY1 | Change, | | | 2008 | 2007 | , % | 2008 | 2007 | % | -------------------------------------------------------------------------------- | Total revenues, | 938 | 1,001 | -6.3 | 1,813 | 1,864 | -2.8 | | million EEK | | | | | | | -------------------------------------------------------------------------------- | EBITDA, million EEK | 365 | 376 | -3.0 | 694 | 706 | -1.7 | -------------------------------------------------------------------------------- | Margin, % | 38.9 | 37.6 | | 38.3 | 37.9 | | -------------------------------------------------------------------------------- | EBIT, million EEK | 299 | 322 | -7.1 | 565 | 600 | -5.9 | -------------------------------------------------------------------------------- | Margin, % | 31.8 | 32.1 | | 31.2 | 32.2 | | -------------------------------------------------------------------------------- | EBT, million EEK | 309 | 325 | -5.0 | 582 | 612 | -4.9 | -------------------------------------------------------------------------------- | Net profit for the | 87 | 76 | 14.7 | 360 | 362 | -0.7 | | period, million EEK | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EEK | 71 | 79 | -10.1 | 128 | 128 | 0.6 | -------------------------------------------------------------------------------- | ROA, % | 45.3 | 52.4 | | | | | -------------------------------------------------------------------------------- | ROE, % | 76.7 | 91.3 | | | | | -------------------------------------------------------------------------------- Broadband services segment -------------------------------------------------------------------------------- | | Q2 2008 | Q2 | Change | HY1 | HY1 | Change, | | | | 2007 | , % | 2008 | 2007 | % | -------------------------------------------------------------------------------- | Total revenues, million | 804 | 734 | 9.6 | 1,568 | 1,431 | 9.6 | | EEK | | | | | | | -------------------------------------------------------------------------------- | EBITDA, million EEK | 246 | 219 | 12.1 | 493 | 434 | 13.4 | -------------------------------------------------------------------------------- | Margin, % | 30. | 29.9 | | 31.4 | 30.4 | | | | 6 | | | | | | -------------------------------------------------------------------------------- | EBIT, million EEK | 173 | 158 | 9.6 | 349 | 313 | 11.7 | -------------------------------------------------------------------------------- | Margin, % | 21. | 21.5 | | 22.3 | 21.8 | | | | 5 | | | | | | -------------------------------------------------------------------------------- | EBT, million EEK | 176 | 156 | 12.4 | 353 | 310 | 14.0 | -------------------------------------------------------------------------------- | Net profit for the | 43 | 35 | 21.9 | 220 | 188 | 16.8 | | period, million EEK | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EEK | 108 | 98 | 10.4 | 164 | 162 | 1.4 | -------------------------------------------------------------------------------- | ROA, % | 24. | 18.2 | | | | | | | 4 | | | | | | -------------------------------------------------------------------------------- | ROE, % | 40. | 30.6 | | | | | | | 2 | | | | | | -------------------------------------------------------------------------------- IT services segment -------------------------------------------------------------------------------- | | Q2 2008 | Q2 | Change | HY1 | HY1 | Change, | | | | 2007 | , % | 2008 | 2007 | % | -------------------------------------------------------------------------------- | Total revenues, million | 87 | 75 | 15.6 | 166 | 183 | -9.3 | | EEK | | | | | | | -------------------------------------------------------------------------------- | EBITDA, million EEK | 7 | 3 | 177.5 | 11 | 5 | 144.3 | -------------------------------------------------------------------------------- | Margin, % | 8.1 | 3.4 | | 6.6 | 2.4 | | -------------------------------------------------------------------------------- | EBIT, million EEK | 1 | -3 | N/A | -1 | -6 | -80.1 | -------------------------------------------------------------------------------- | Margin, % | 1.2 | -4.2 | | -0.7 | -3.3 | | -------------------------------------------------------------------------------- | EBT, million EEK | 1 | 1 | 46.0 | -2 | 1 | N/A | -------------------------------------------------------------------------------- | Net profit for the | 1 | 1 | 46.0 | -2 | 1 | N/A | | period, million EEK | | | | | | | -------------------------------------------------------------------------------- | CAPEX, million EEK | 5 | 7 | -36.4 | 10 | 12 | -14.3 | -------------------------------------------------------------------------------- | ROA, % | 4.6 | 7.1 | | | | | -------------------------------------------------------------------------------- | ROE, % | 17. | 12.9 | | | | | | | 4 | | | | | | -------------------------------------------------------------------------------- Sales revenues, operating costs and profits The second quarter results of the Eesti Telekom Group for 2008 corresponded to the expectations of the management board. The Group's sales revenues reached 1,567 million EEK in the second quarter of 2008 (2nd quarter 2007: 1,582 million EEK), and was primarily affected by the reduction in interconnection fees (As of 5 November 2007, the state regulator fixed an interconnection fee of 1.66 EEK instead of the former 2.50 EEK in mobile phone networks). The consolidated turnover of the mobile communications services segment was 938 million EEK in the second quarter of 2008, decreasing by 6% compared to the same period in 2007 (2nd quarter 2007: 1,001 million EEK). The reduction of revenues was caused by a drop in interconnection revenues based on the reduction in interconnection fees, which was partially compensated by a certain increase in the number of call minutes incoming to the network, an increase in mobile data communications, and growth in the volume of subcontracting services. In addition, the revenues received from the retailing and wholesaling of telecommunications goods decreased in the second quarter compared to a year ago, while the repair of mobile equipment increased, which is caused by changes in consumer behavior. At the end of the second quarter of 2008, the client base of AS EMT was 9 thousand more than at the end of the second quarter of last year, reaching 755 thousand active SIM cards (July 2007: 746 thousand cards). Compared to a year ago, the number of contractual clients has increased by 30 thousand, reaching 480 thousand by the end of the second quarter of 2008, while at the same time the number of pre-paid card users has decreased by 21 thousand during the year to 275 thousand by the end of the second quarter. EMT assesses its market share of active SIM cards to be 47%. The penetration of active cards in Estonia is 118%. The level of call minutes initiated by EMT clients slightly increased compared to the second quarter of last year. Pursuant to the resolution of the Communications Board dated 21 March 2006, the termination fee for voice calls in the mobile phone networks (interconnection fee) for AS EMT, Elisa Eesti AS and Tele2 Eesti AS for the period 1 July 2006 to 30 June 2007 was fixed at 2.05 EEK per minute, and pursuant to the resolutions of the Communications Board dated 20 June and 22 June 2007, was fixed at 1.66 EEK for the period 1 July 2007 to 30 June 2008. Since Elisa Eesti AS and Tele2 Eesti AS disputed the decisions in court, and in the course of provisional legal protection, the validity of the aforementioned administrative act was suspended, the interconnection fees of all three mobile operators remained at 2.50 EEK until 5 November 2007. On 5 November 2007, the ruling of the Tallinn Circuit Court came into force, whereby the provisional legal protection was cancelled and all three mobile operators were obligated to apply interconnection fees of 1.66 EEK. Litigation by Elisa Eesti AS and Tele2 with the Communications Board is continuing, and EMT is participating in the litigation as a third party. With its resolution of 25 March 2008, the Competition Board, which is the legal successor to the Communications Board, established a fee of 1.37 EEK per minute for the termination of voice calls in the mobile phone networks of AS EMT, Elisa Eesti AS and Tele2 Eesti AS between 1 July 2008 and 30 June 2009. The revenues received from mobile Internet continued to demonstrate very rapid growth. In the second quarter of this year, the revenues from AS EMT mobile data communications increased by more than 50% compared to same period in 2007. At the same time, the volume of data that was forwarded increased several times. In June 2008, the users of AS EMT mobile data communications numbered 150 thousand, i.e. eight thousand users more than at the same time last year. The increase in the popularity of mobile data communications is based on the dynamic expansion of the 3G coverage area, which allows clients to use high-quality and rapid data communications at speeds approaching ADSL at conveniently manageable prices. By the end of last year, 3G coverage extended to all the Estonian county seats and many other cities and their vicinities. The installation of new 3G stations for the expansion of foreign and domestic coverage is proceeding at a faster pace than earlier. In addition, EMT has the only EDGE network in Estonia with data communications speeds of up to 200 kbit per second that covers the entire GSM coverage area. As of the second quarter, EMT reduced its roaming fees for data communications in various European countries up to fourfold in order to further promote clients' opportunities to use the Internet and to speed up the growth of data communications. A regulation of the European Parliament and Council applies to AS EMT, as it does to other mobile operators in the European Community, which specifies that as of September 2007 the rate per minute for outgoing and incoming calls made within the borders of the European Community cannot exceed the established price ceiling. Therefore, the revenues received from roaming clients in the second quarter decreased by almost 10%. The sales revenues for the broadband services segment increased in the second quarter by 10% reaching 804 million EEK (2nd quarter 2007: 734 million EEK). The greatest revenue increase resulted from the sale of subcontracting services, which increased by 217%, or 56 million EEK, compared to the same period the last year. Revenues from subcontracting services primarily grew due to the sales volumes of increased brokered sub-services. Revenues from domestic call transit increased by 124% in the last quarter and the revenues from international call transit by 231%. The revenue increase from call transit was also primarily related to increases of the minute volumes of the subcontracting service. At the same time, the revenues for call services earned from end consumers decreased by 7% due to the drop in minute volumes. In the second quarter, the total number of Elion clients with permanent connections increased, reaching 168 thousand by the end of June (30 June 2007: 152 thousand). The company estimates that its market share based on clients with permanent connections is 55%. At the end of May, OÜ Viru Net, a 100% subsidiary of Elion, was merged with the parent company Elion Enterprises. Viru Net was the leading provider of Internet services in East-Viru County, specializing in the provision of services to multi-story buildings. Upon the merger of the companies, Elion will initiate a broader program to introduce and develop the Internet in multi-story buildings in East-Viru County, by combining Viru Net's knowledge of the client segment and its long-term experiences in the area with Elion's systematic solutions, high quality and broad product portfolio. Essentially, the merger of the company will not result in any changes for the current clients. Similarly to earlier quarters, the trend in connection fees for broadband services is continuing, whereby the clients are replacing individual services with comprehensive service packages. Compared to last year, the revenues for the broadband services segment increased 31% from the connection fees for service packages. The number of triple-package users increased by 4,200 in the quarter, reaching 62.8 thousand as of 30 June (30 June 2007: 36.4 thousand). By the end of the second quarter, Elion had 67.7 thousand IP and cable television clients (30 June 2007: 39.5 thousand). The popularity of the triple package has been significantly helped by the range of additional services being provided, such as video rental, the volume of which doubled in the second quarter compared to the first quarter. The marketing campaign promoting free films also increased the rental of paid films. Compared to last year, Elion's video rental fees increased by 201% in the second quarter. In April three new channels - Disney Channel, Toon Disney, and Playhouse Disney - were added to the Elion DigiTV children's package, which resulted in a price increase for the package from 20 EEK to 35 EEK. Among the Elion DigiTV theme package, the children's package with over 4,000 subscribers is one of the most popular. Based on the significant increase in the volume and revenues of service packages, the revenues from monthly fees for call connections and Internet connections in the last quarter fell by 10% and 18% respectively compared to the same period of last year. By the end of the second quarter, the number of Elion's active call interfaces totaled 472 thousand (30 June 2007: 468 thousand interfaces), remaining stable at the same level for the last three quarters. Elion assesses its market share for call minutes initiated in the fixed network to be 81% (June 2007: 82%). The market share for local call minutes is 83% (June 2007: 84%), 66% for international call minutes (June 2007: 65%) and 71% for call minutes made to mobile phones (June 2007: 69%). In May, Elisa Eesti AS announced its decision to raise the termination fee for calls in its fixed voice communications network by 45%. Based on an application from Elion Enterprises, the Competition Board started a proceeding to examine the justification for the price increase. The general cooling of the Estonian economy and deceleration of the pace retail sales growth, the Elion Group's retail sales of telecommunications and IT merchandise decreased in the second quarter by 22% compared to last year. At the same time, due to a successful marketing campaign at the second half of the quarter, the retail sales at Elion outlets demonstrated signs of renewed acceleration. Sales revenues for the IT services segment reached 87 million EEK in the second quarter of 2008 (2nd quarter 2007: 75 million EEK). Compared to the same quarter of last year, sales revenues increased by 16%, whereas IT services increased by 14% and IT merchandise by 18%. Significant impact on the sales results for infrastructure solutions was exerted by several large procurements that were realized in the second quarter, including the procurement for the desktop computers for the Ministry of Justice, the disk massif for the e-health project organized by the Ministry of Social Affairs, the servers at the Estonian Informatics Center, and several successful projects in financial institutions. During the second quarter, the keyword in the project business was the continuation of work related to the e-health project (patient portal, digital pictures, and digital prescriptions). Implementation continued of important projects at Estonian Post (document management, the implementation of service desk software), at the Tax and Customs Board (document management), at the North-Estonian Regional Hospital (identity management), and at the Labor Market Board (software development). The management of the central system and workplace computers at Empower Eesti were taken over in the second quarter; 250 new users were connected to the Education Department's school and kindergarten project, and numerous new service contracts were signed with business clients. Several public procurements (Ministry of Social Affairs, Tallinn City Government) also took place in the second quarter, the results of which will be announced in the third quarter. The operating costs of the Eesti Telekom Group decreased by 3% in the second quarter of 2008 compared to the same period last year, reaching 960 million EEK (2nd quarter 2007: 994 million EEK). The operating costs in the mobile communications services segment decreased by 8% compared to the second quarter of 2007, to 576 million EEK (2nd quarter 2007: 626 million EEK). The greatest decrease was the drop in interconnection prices based on interconnection costs. The operating costs related to retailing and wholesaling also decreased, which corresponds to the drop in sales turnovers. The operating costs in the broadband services segment increased by 9% compared to the same period in 2007, reaching 563 million EEK (2nd quarter 2007: 515 million EEK). Two-thirds of the increase in operating costs resulted from the sales volumes of subcontracting services and the growth of direct sales costs based on the increased minute volumes for domestic and international call transit. The other principal growth factors for operating costs were salary costs and the taxes related thereto, which increased by 9% compared to last year. At the same time, based on the reduction of call volumes, the direct sales costs related to domestic call services decreased by 41%. As a result of smaller sales volumes, sales costs for retail merchandise also decreased by 22%. The operating costs in the IT services segment increased by 10% in the second quarter, reaching 80 million EEK (2nd quarter 2007: 73 million EEK). The Eesti Telekom Group EBITDA in the second quarter of 2008 reached 613 million EEK, which was 4% more than in the second quarter of 2007 (2nd quarter 2007: 590 million EEK). The EBITDA in the mobile communications services segment decreased in the second quarter by 3% compared to the same period last year. EBITDA in the broadband services segment increased by 12% and the corresponding indicator in the IT services segment in the second quarter of 2008 was 7 million EEK (2nd quarter 2007: 3 million EEK). The Group's EBITDA margin in the second quarter of 2008 was 39%, which is somewhat higher than the margin for the corresponding period in 2007. The Group's depreciation costs reached 145 million EEK in the second quarter of 2008, increasing by 18% compared to the same period in 2007 (2nd quarter 2007: 123 million EEK). In the second quarter, the Eesti Telekom Group earned an EBIT of 468 million EEK, thereby remaining at the same level as last year (2nd quarter 2007: 468 million EEK). The Group's (net) financial revenues increased in the second quarter by 46% reaching 20 million EEK (2nd quarter 2007: 14 million EEK). In the second quarter, the Eesti Telekom Group earned pre-tax profits of 487 million EEK (2nd quarter 2007: 479 million EEK). On 17 June of this year, AS Eesti Telekom again paid its shareholders record-breaking dividends of 1,449 million EEK from the profits (2007: 1,311 million EEK). In order to enable the payment of dividends to the shareholders of AS Eesti Telekom, AS EMT paid the parent company dividends of 820 million EEK (2nd quarter 2007: 885 million EEK) and Elion Enterprises paid 500 million EEK (2nd quarter 2007: 430 million EEK). The payment of the dividends was accompanied by income tax payable on the dividends totaling 386 million EEK (2nd quarter 2007: 371 million EEK), of which AS EMT paid 222 million EEK (2nd quarter 2007: 250 million EEK) and Elion Enterprises paid 133 million EEK (2nd quarter 2007: 121 million EEK). In the second quarter of 2008, the net profit for the Eesti Telekom Group was 101 million EEK (2nd quarter 2007: 108 million EEK). The revenue per share was 0.73 EEK (2nd quarter 2007: 0.77 EEK). Balance sheet and cash flows As of 30 June 2008, the Eesti Telekom Group balance sheet totaled 4,515 million EEK (31. December 2007: 5,023 million EEK). Compared to the beginning of the year, fixed assets had increased by 6 million EEK, thereby bringing the depreciated value at the end of the second quarter to 2,756 million EEK. The Group's current assets have decreased during the first six months of 2008 by 514 million EEK, reaching 1,759 million EEK by the end of June (31 December 2007: 2,273 million EEK). Cash and cash equivalents, as well as the balance of short-term financial investments, have decreased by 602 million EEK, in connection with the dividends paid out in June. As of 30 June 2008, the Eesti Telekom Group equity was 3,412 million EEK, which is 903 million EEK less than at the end of 2007 (31 December 2007: 4,314 million EEK). The decrease in equity is related to the payment of a dividend totaling 1,449 million EEK. At the same time, equity has been increased by a profit of 553 million EEK in the first six months of 2008. As of the end of June, the Group had long-term obligations of 26 million EEK (31 December 2007: 25 million EEK). The increase in short-term debt obligations results from the income tax liabilities of 386 million EEK resulting from the payment of dividends. The net debt of the Eesti Telekom Group at the end of the second quarter was -486 million EEK and the net debt to equity ratio was -14% (31 December 2007: -1,087 million EEK and -25%). The Eesti Telekom Group cash flow from operations in the first six months of 2008 was 1,143 million EEK (first six months of 2007: 1,010 million EEK). The Group's cash flow from investment activities was 399 million EEK (first six months of 2007: 666 million EEK). The cash flow into the acquisition of tangible and intangible fixed assets in the first six months was 303 million EEK (first six months of 2007: 301 million EEK). In the second quarter of this year, the mobile communications segment has invested 71 million EEK (2nd quarter 2007: 79 million EEK). In mobile communications, in addition to the constant development of the GSM network, a developmental priority was the implementation of technologies to support high-speed mobile data communications. In the second quarter of 2008, the investments into the broadband services segment totaled 108 million EEK (2nd quarter 2007: 98 million EEK). The majority of the investments continue to be made to improve the quality of services (for instance, the acquisition of NGN service routers and the expansion of the IP core network) as well as the improvement of permanent Internet connections and DigiTV accessibility (implementation of GPON technology, acquisition of xDSL equipment). In the second quarter of 2008, the IT services segment invested 5 million EEK into fixed assets (2nd quarter 2007: 7 million EEK). The investments in the second quarter of last year included the purchase of the AS MicroLink trademarks that were acquired in the course of the merger of the parent company AS MicroLink and Elion Enterprises that occurred within the framework Eesti Telekom Group's structural changes. An important event for MicroLink Eesti during the second quarter was moving to the Ülemiste Technology Campus on June 20th. Almost 300 square meters of space in the new building will be the location of a demonstration center for information technology that is unique in Estonia, where Estonian enterprises as well foreign visitors will have the opportunity to see how information technology solutions work in practice. In the first six months of this year, the Eesti Telekom Group cash flow into financial activities was 1,450 million EEK, of which 1,449 million EEK was used to pay dividends (in the first six months of 2007, these amounts were 1,311 million EEK and 1,311 million EEK respectively). Ownership structure of AS Eesti Telekom During the second quarter of 2008, there were no significant changes in the structure of the AS Eesti Telekom shareholders. The AS Eesti Telekom majority shareholder TeliaSonera AB (through Baltic Tele AB) continues to own 60.12% of the company's shares. As of the end of the second quarter, the ratio of freely traded shares converted to GDRs was 12.71%. Of these, 18.93% were converted into GDRs traded on the London Stock Exchange. As of 3 July 2008, the 10 largest shareholders in AS Eesti Telekom were: -------------------------------------------------------------------------------- | | Number of | Participation | | | securities | | -------------------------------------------------------------------------------- | TeliaSonera AB | 82,936,299 | 60.12% | -------------------------------------------------------------------------------- | Republic of Estonia | 33,346,464 | 24.17% | -------------------------------------------------------------------------------- | Estonian Development Fund | 4,138,636 | 3.00% | -------------------------------------------------------------------------------- | Deutsche Bank Trust Company (GDR | 3,319,437 | 2.41% | | accounts) | | | -------------------------------------------------------------------------------- | Ing Luxembourg S. A. | 1,818,330 | 1.32% | -------------------------------------------------------------------------------- | Danske Bank clients | 1,370,739 | 0.99% | -------------------------------------------------------------------------------- | Skandinaviska Enskilda Banken AB | 1,329,850 | 0.96% | | clients | | | -------------------------------------------------------------------------------- | Bank Austria Creditanstalt AG clients | 910,626 | 0.66% | -------------------------------------------------------------------------------- | Clearstream Banking Luxembourg clients | 580,336 | 0.42% | -------------------------------------------------------------------------------- | Mellon Treaty Omnibus | 392,152 | 0.28% | -------------------------------------------------------------------------------- Shareholders' general meeting The regular general meeting of AS Eesti Telekom took place on 22 May 2008. The general meeting approved the 2007 annual report and the proposal for the distribution of dividends. The AS Eesti Telekom shareholders were paid dividends of 10.50 EEK per share or a total of 1,449 million EEK for the last financial year. The dividends were paid out on 17 June 2008 based on the list of shareholders, which was fixed as of 6 June 2008 at 23:59. Accumulated earnings of 981 million EEK were not distributed. The option to repurchase AS Eesti Telekom shares was extend for another five year, i.e. until 22 May 2013. The general meeting recalled the current Supervisory Board of AS Eesti Telekom and elected the following members for the new Supervisory Board: Anders Gylder, Lars Gunnar Klasson, Jörgen Latte, Tarmo Porgand, Jüri Raatma, Mats Salomonsson and Aare Tark. The members of the Supervisory Board may be paid 11,000 EEK per month for their services and the chairman may be paid 20,000 EEK per month. The general meeting chose AS PricewaterhouseCoopers (reg. code 10142876) as the Eesti Telekom auditor for the 2008 financial year. The execution of the auditing services and payment for services will occur based on a contract to be concluded with the auditing company. Shareholders' extraordinary general meeting An extraordinary general meeting of the AS Eesti Telekom shareholders took place on 26 June 2008. The general meeting recalled Anders Gylder, a current member of the AS Eesti Telekom Supervisory Board, and elected Björn Lindegren as a new member of the Supervisory Board. Changes in the structure of the Eesti Telekom Group On 1 June 2008, OÜ Viru Net merged with Elion Enterprises. Viru Net has been an Elion subsidiary since the end of 2004. The purpose of the given change was the development and broader provision of Internet services. Definitions Net debt - Long- and short-term interest-bearing borrowings, less cash and cash equivalents and short-term investments ROA -Net profit for the last four quarters divided by the average total assets for the same period ROE - Pre-tax profit for last four quarters divided by the average equity for the same period II QUARTER CONSOLIDATED INCOME STATEMENT In thousand of Estonian kroons (EEK) -------------------------------------------------------------------------------- | | Notes | II Quarter | II Quarter | | | | 2008 | 2007 | -------------------------------------------------------------------------------- | Net sales | 2.1(a) | 1,566,708 | 1,582,417 | -------------------------------------------------------------------------------- | Cost of production | 2.1(a) | (881,242) | (870,081) | -------------------------------------------------------------------------------- | Gross profit | | 685,466 | 712,336 | -------------------------------------------------------------------------------- | Sales, administrative, and research | 2.1(a) | (224,265) | (246,647) | | & development expenses | | | | -------------------------------------------------------------------------------- | Other operating revenues | 2.1(a) | 8,000 | 3,137 | -------------------------------------------------------------------------------- | Other operating expenses | 2.1(a) | (1,267) | (1,276) | -------------------------------------------------------------------------------- | Operating profit | | 467,934 | 467,550 | -------------------------------------------------------------------------------- | Finance income | | 20,627 | 13,923 | -------------------------------------------------------------------------------- | Finance costs | | (588) | (218) | -------------------------------------------------------------------------------- | Finance income, net | 2.1(a) | 20,039 | 13,705 | -------------------------------------------------------------------------------- | Net income / (expenses) from | 2.1(a) | (800) | (2,012) | | associated companies | | | | -------------------------------------------------------------------------------- | Profit before tax | | 487,173 | 479,243 | -------------------------------------------------------------------------------- | Income tax on dividends | | (385,721) | (370,897) | -------------------------------------------------------------------------------- | Net profit for the period | 2.1(a) | 101,452 | 108,346 | -------------------------------------------------------------------------------- | Attributable to: | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1(a) | 101,315 | 106,863 | -------------------------------------------------------------------------------- | Minority interest | 2.1(a) | 137 | 1,483 | -------------------------------------------------------------------------------- | | | 101,452 | 108,346 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings per share for profit | 7 (e) | | | | attributable to the equity holders | | | | | of the parent during the reporting | | | | | period (expressed in EEK) | | | | -------------------------------------------------------------------------------- | Basic earnings per share | | 0.73 | 0.77 | -------------------------------------------------------------------------------- | Diluted earnings per share | | 0.73 | 0.77 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EBITDA | 2.1(a) | 613,078 | 590,446 | -------------------------------------------------------------------------------- | Depreciation, amortization and | 2.1(a) | (145,144) | (122,896) | | write-downs | | | | -------------------------------------------------------------------------------- I HALF YEAR CONSOLIDATED INCOME STATEMENT In thousand of Estonian kroons (EEK) -------------------------------------------------------------------------------- | | Notes | I HY 2008 | I HY 2007 | 2007 | -------------------------------------------------------------------------------- | Net sales | 2.1(b), | 3,050,889 | 3,078,935 | 6,261,002 | | | 2.3 | | | | -------------------------------------------------------------------------------- | Cost of production | 2.1(b) | (1,711,73 | (1,721,262 | (3,542,791 | | | | 7) | ) | ) | -------------------------------------------------------------------------------- | Gross profit | | 1,339,152 | 1,357,673 | 2,718,211 | -------------------------------------------------------------------------------- | Sales, administrative, and | 2.1(b) | (446,247) | (469,611) | (900,011) | | research & development | | | | | | expenses | | | | | -------------------------------------------------------------------------------- | Other operating revenues | 2.1(b) | 14,285 | 6,264 | 28,114 | -------------------------------------------------------------------------------- | Other operating expenses | 2.1(b) | (2,821) | (2,332) | (6,336) | -------------------------------------------------------------------------------- | Operating profit | | 904,369 | 891,994 | 1,839,978 | -------------------------------------------------------------------------------- | Finance income | | 38,378 | 29,576 | 48,626 | -------------------------------------------------------------------------------- | Finance costs | | (1,172) | (768) | (2,342) | -------------------------------------------------------------------------------- | Finance income, net | 2.1(b) | 37,206 | 28,808 | 46,284 | -------------------------------------------------------------------------------- | Net income / (expenses) from | 2.1(b) | (2,480) | (1,809) | (3,817) | | associated companies | | | | | -------------------------------------------------------------------------------- | Profit before tax | | 939,095 | 918,993 | 1,882,445 | -------------------------------------------------------------------------------- | Income tax on dividends | | (385,721) | (370,897) | (370,897) | -------------------------------------------------------------------------------- | Net profit for the period | 2.1(b) | 553,374 | 548,096 | 1,511,548 | -------------------------------------------------------------------------------- | Attributable to: | | | | | -------------------------------------------------------------------------------- | Equity holders of the parent | 2.1(b) | 551,966 | 544,932 | 1,505,098 | -------------------------------------------------------------------------------- | Minority interest | 2.1(b) | 1,408 | 3,164 | 6,450 | -------------------------------------------------------------------------------- | | | 553,374 | 548,096 | 1,511,548 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings per share for | 7 (e) | | | | | profit attributable to the | | | | | | equity holders of the parent | | | | | | during the reporting period | | | | | | (expressed in EEK) | | | | | -------------------------------------------------------------------------------- | Basic earnings per share | | 4.00 | 3.95 | 10.91 | -------------------------------------------------------------------------------- | Diluted earnings per share | | 4.00 | 3.95 | 10.91 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EBITDA | 2.1(b) | 1,189,430 | 1,132,528 | 2,336,260 | -------------------------------------------------------------------------------- | Depreciation, amortization | 2.1(b), | (285,061) | (240,534) | (496,282) | | and write-downs | 3 | | | | -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET In thousand of Estonian kroons (EEK) -------------------------------------------------------------------------------- | | Notes | 30 June | 31 December | 30 June | | | | 2008 | 2007 | 2007 | -------------------------------------------------------------------------------- | ASSETS | | | | | -------------------------------------------------------------------------------- | Non-current assets | | | | | -------------------------------------------------------------------------------- | Property, plant and | 3 | 2,432,084 | 2,405,114 | 2,118,025 | | equipment | | | | | -------------------------------------------------------------------------------- | Intangible fixed assets | 3 | 206,877 | 216,011 | 199,685 | -------------------------------------------------------------------------------- | Investments in associates | 2.2, 5 | 10,942 | 13,422 | 15,438 | -------------------------------------------------------------------------------- | Other financial fixed | | 106,041 | 115,059 | 119,475 | | assets | | | | | -------------------------------------------------------------------------------- | Total non-current assets | 2.2 | 2,755,944 | 2,749,606 | 2,452,623 | -------------------------------------------------------------------------------- | Current assets | | | | | -------------------------------------------------------------------------------- | Assets classified as | | - | 1,732 | 2,235 | | held-for-sale | | | | | -------------------------------------------------------------------------------- | Inventories | 6 | 170,820 | 187,573 | 161,464 | -------------------------------------------------------------------------------- | Trade and other | | 1,099,761 | 992,939 | 990,365 | | receivables | | | | | -------------------------------------------------------------------------------- | Short-term investments | | - | 694,040 | 123,394 | -------------------------------------------------------------------------------- | Cash and cash equivalents | | 488,850 | 396,778 | 661,721 | -------------------------------------------------------------------------------- | Total current assets | 2.2 | 1,759,431 | 2,273,062 | 1,939,179 | -------------------------------------------------------------------------------- | TOTAL ASSETS | 2.2 | 4,515,375 | 5,022,668 | 4,391,802 | -------------------------------------------------------------------------------- | EQUITY AND LIABILITIES | | | | | -------------------------------------------------------------------------------- | Capital and reserves | 7 | | | | | attributable to equity | | | | | | holders of the parent | | | | | -------------------------------------------------------------------------------- | Share capital | | 1,379,545 | 1,379,545 | 1,379,545 | -------------------------------------------------------------------------------- | Share premium | | 356,018 | 356,018 | 356,018 | -------------------------------------------------------------------------------- | Statutory legal reserve | | 137,955 | 137,955 | 137,955 | -------------------------------------------------------------------------------- | Retained earnings | | 980,838 | 924,263 | 924,263 | -------------------------------------------------------------------------------- | Net profit for the period | | 551,966 | 1,505,098 | 544,932 | -------------------------------------------------------------------------------- | Total capital and reserves | | 3,406,322 | 4,302,879 | 3,342,713 | | attributable to equity | | | | | | holders of the parent | | | | | -------------------------------------------------------------------------------- | Minority interest | 2.2, 7 | 5,357 | 11,480 | 8,194 | -------------------------------------------------------------------------------- | Total equity | | 3,411,679 | 4,314,359 | 3,350,907 | -------------------------------------------------------------------------------- | Non-current liabilities | | | | | -------------------------------------------------------------------------------- | Interest bearing loans and | 8 | 67 | 1,343 | 2,183 | | borrowings | | | | | -------------------------------------------------------------------------------- | Retirement benefit | 9 | 2,696 | 3,239 | 3,735 | | obligations | | | | | -------------------------------------------------------------------------------- | Provisions | 10 | 21,201 | 20,673 | 20,274 | -------------------------------------------------------------------------------- | Non-interest bearing | | 1,920 | - | 5,148 | | liabilities | | | | | -------------------------------------------------------------------------------- | Total non-current | 2.2 | 25,884 | 25,255 | 31,340 | | liabilities | | | | | -------------------------------------------------------------------------------- | Current liabilities | | | | | -------------------------------------------------------------------------------- | Trade and other payables | | 1,071,667 | 670,989 | 1,000,240 | -------------------------------------------------------------------------------- | Interest bearing loans and | 8 | 2,444 | 2,778 | 2,456 | | borrowings | | | | | -------------------------------------------------------------------------------- | Retirement benefit | 9 | 1,001 | 4,814 | 4,689 | | obligations | | | | | -------------------------------------------------------------------------------- | Provisions | 10 | 2,700 | 4,473 | 2,170 | -------------------------------------------------------------------------------- | Total current liabilities | 2.2 | 1,077,812 | 683,054 | 1,009,555 | -------------------------------------------------------------------------------- | Total liabilities | | 1,103,696 | 708,309 | 1,040,895 | -------------------------------------------------------------------------------- | TOTAL EQUITY AND | 2.2 | 4,515,375 | 5,022,668 | 4,391,802 | | LIABILITIES | | | | | -------------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT In thousand of Estonian kroons (EEK) -------------------------------------------------------------------------------- | | Notes | I HY 2008 | I HY 2007 | -------------------------------------------------------------------------------- | Operating activities | | | | -------------------------------------------------------------------------------- | Net profit for the period | | 553,374 | 548,096 | -------------------------------------------------------------------------------- | Adjustments for: | | | | -------------------------------------------------------------------------------- | Depreciation, amortisation and | 3 | 285,061 | 240,534 | | impairment of fixed and intangible | | | | | assets | | | | -------------------------------------------------------------------------------- | (Profit) / loss from sales and | | (6,957) | (9,552) | | discards of fixed assets | | | | -------------------------------------------------------------------------------- | Net (income) / expenses from | | 2,480 | 1,809 | | associated companies | | | | -------------------------------------------------------------------------------- | Provisions | | (5,667) | (5,113) | -------------------------------------------------------------------------------- | Financial items | | (55,909) | (47,036) | -------------------------------------------------------------------------------- | Income tax on dividends | | 385,721 | 370,824 | -------------------------------------------------------------------------------- | Miscellaneous non-cash items | | 90 | (2,472) | -------------------------------------------------------------------------------- | Cash flow before change in working | | 1,158,193 | 1,097,090 | | capital | | | | -------------------------------------------------------------------------------- | Change in current receivables | | (99,289) | (102,431) | -------------------------------------------------------------------------------- | Change in inventories | | 9,875 | (18,812) | -------------------------------------------------------------------------------- | Change in current liabilities | | 7,183 | (23,257) | -------------------------------------------------------------------------------- | Change in working capital | | (82,231) | (144,500) | -------------------------------------------------------------------------------- | Cash flow after changes in working | | 1,075,962 | 952,590 | | capital | | | | -------------------------------------------------------------------------------- | Interest received | | 69,646 | 58,592 | -------------------------------------------------------------------------------- | Interest paid | | (2,472) | (732) | -------------------------------------------------------------------------------- | Cash flow from operating activities | 2.2 | 1,143,136 | 1,010,450 | -------------------------------------------------------------------------------- | Investing activities | | | | -------------------------------------------------------------------------------- | Intangible and tangible fixed assets | 2.2, 3 | (302,847) | (301,456) | | acquired | | | | -------------------------------------------------------------------------------- | Intangible and tangible fixed assets | | 8,691 | 11,924 | | divested | | | | -------------------------------------------------------------------------------- | Net change in interest-receivables | | 749,734 | 968,924 | | short maturities | | | | -------------------------------------------------------------------------------- | Net cash changes of other long-term | | (56,989) | (13,464) | | receivables | | | | -------------------------------------------------------------------------------- | Cash flow from investing activities | 2.2 | 398,589 | 665,928 | -------------------------------------------------------------------------------- | Cash flow before financing | | 1,541,725 | 1,676,378 | | activities | | | | -------------------------------------------------------------------------------- | Financing activities | | | | -------------------------------------------------------------------------------- | Proceeds from non-convertible debts | 8 | - | 196 | -------------------------------------------------------------------------------- | Repayment of finance lease | 8 | (1,315) | (899) | | liabilities | | | | -------------------------------------------------------------------------------- | Dividends paid | 7(d) | (1,448,523) | (1,310,568) | -------------------------------------------------------------------------------- | Cash flow used in financing | 2.2 | (1,449,838) | (1,311,271) | | activities | | | | -------------------------------------------------------------------------------- | Cash flow for the year | 2.2 | 91,887 | 365,107 | -------------------------------------------------------------------------------- | | | | | -------------------------------------------------------------------------------- | Cash and cash equivalents at | 2.2 | 396,778 | 324,405 | | beginning of year | | | | -------------------------------------------------------------------------------- | Cash flow for the year | 2.2 | 91,887 | 365,107 | -------------------------------------------------------------------------------- | Effect of foreign exchange rate | 2.2 | 185 | 25 | | changes | | | | -------------------------------------------------------------------------------- | Cash and cash equivalents at end of | 2.2 | 488,850 | 689,537 | | period | | | | --------------------------------------------------------------------------------
AS Eesti Telekom Consolidated II Quarter and I Half Year 2008 Interim Report, EEK
| Source: Eesti Telekom